TaxTMI 
TaxTMI 
2003 (2) TMI 40
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....in the notes prepared by him. He had given details of the reasons. These were considered by the Director and the Director-General who had authorised the search and seizure. According to him, the materials available on the note were sufficient for the formation of an opinion that there were reasons to believe. A reasonable man could very well form such an opinion on the basis of the materials available. He had relied on the decision in Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456, 477 (SC), in support of his contention. He had also relied on the decision in ITO v. Seth Brothers [1969] 74 ITR 836, 847 (SC), for the same proposition. He also relied on the decision in Pooran Mal v. Director of Inspection (Investigation) [1974] 93 ITR 505, 518-520 (SC). Elaborating his submission, he had led us through the detailed report and ratio laid down in those decisions. He pointed out that there is no infirmity in the issuance of notice under section 132(1) of the Act having regard to the facts and circumstances of the case. The court cannot adjudge the sufficiency or adequacy of the materials. It is only the existence of the materials that are to be examined and it is to be seen whether on....
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....notice. Therefore, there was no scope of forming such an opinion with regard thereto. He also pointed out that the expansion of business or improvement in lifestyle of the assessee or the members of his family would not be material for the purpose of exercising power under section 132. In any event, there is nothing to show that Pratik Food Products or Mahesh Kumar Agarwal was expanding his business. The improvement of lifestyle is not a matter to contribute to the formation of the opinion that there are reasons to believe as contemplated in section 132(1). Mr. Bhattacharya had relied the decision in Dr. Nand Lal Tahiliani v. CIT [1988] 170 ITR 592 (All) to contend that improvement in the lifestyle is not a ground. Mr. Bhattacharya had also relied on the decision in L.R. Gupta v. Union of India [1992] 194 ITR 32 (Delhi) in support of his contention that search and seizure is a serious invasion into the privacy of the individual which invites application of mind and formation of opinion. Such opinion must be something more than rumour or gossip and not subjective but objective. He also relied on the decision in Ganga Prasad Maheshwari v. CIT [1983] 139 ITR 1043, 1050 (All), to conte....
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.... requires satisfaction of the condition precedent for exercising the power as provided therein. The power can be exercised by any of the officers mentioned therein only, when, in consequence of information in his possession, he has reason to believe that any person to whom summon or notice has been or might be issued, will not or would not produce or cause to be produced any books of account or other documents useful or relevant to any proceeding under the Act, or any person is in possession of any money, bullion or other valuable article or thing that represents either wholly or partly income or property, which has not been or would not be disclosed for the purposes of this Act, then such officer may cause search and seizure in the manner provided in different clauses (i) to (v) of the said section. Therefore, the condition precedent imposed is that the officer must be (i) in possession of information on the basis whereof, (ii) he has reason to believe that, (iii) the concerned person has not produced or would not cause to be produced the books of account or has not or would not disclose the money, bullion, jewellery or other valuable articles or things in his possession. This ....
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....is a judgment arrived at by reasoning; or an information; deduction, etc. In other words, when an information is received or the basic facts are harnessed in support of an argument, the resultant fact assumes the shape of a reason and when the number of reasons are considered in relation to each other, the final result to this consideration assumes the shape of a belief. A necessary concomitant of this approach is that the fact constituting an information must be relevant to an enquiry. They must be such from which a reasonable and prudent man can come to the requisite belief or conclusion. If either of the aforementioned elements is missing, the action of the authority shall be regarded as outside the ambit and scope of the Act. Such an action would be liable to be struck down on the basis of what is commonly known as legal malice. In Shyam Jewellers' case [1992] 196 ITR 243, the Allahabad High Court dealing with section 132(1) had taken the view that "reason to believe" postulates application of mind and assigning of reasons. It is a rational nexus between reason and belief. A reason to believe does not mean a purely subjective satisfaction. The belief must be held in good fai....
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....t his contention he relied upon L.R. Gupta v. Union of India [1992] 194 ITR 32 (Delhi), and contended that search and secure were a serious invasion of the privacy of the assessee. Therefore, it required an application of mind for the purpose of formation of opinion and the information on which such opinion was to be formed and there must be something more than rumours or gossip. In Ganga Prasad Maheshwari v. CIT [1983] 139 ITR 1043, 1050 (All), relied on by Mr. Bhattacharya, the Allahabad High Court had dealt with the expression "reason to believe" and had held that this has a salubrious safeguard to protect the privacy of the assessee and, therefore, it had to be exercised with care and caution only when there were reasons to believe. "Reason to believe" is a common feature in taxing statutes. It has been considered to be the most salutary safeguard on the exercise of power by the officer concerned. It is made of two words "reason" and to "believe". The word "reason" means cause or justification and the word "believe" means to accept as true or to have faith in it. Before the officer has faith or accepts a fact to exist, there must be a justification for it. The belief may not....
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.... may now examine the materials in order to find out as to whether there exist sufficient materials for the purpose of establishing that there were informations for the formation of an opinion that there existed reasons to believe. One of the grounds mentioned was that the family of the assessee had improved their lifestyle. But, simply because the lifestyle of a person has undergone a change towards improvement will not be a material for the purpose of formation of opinion that there are reasons to believe. In fact, so far as the books of account are concerned, the reason to believe would be related to the fact that the assessee has not or would not produce or cause to be produced the books of account if notice is issued to him. Whereas reason to believe in relation to money, bullion or other valuable articles or things, as the case may be, relates to the fact that the assessee has not disclosed or would not disclose if notice is issued to him. That has nothing to do with the change in the lifestyle towards improvement, as was held in the decision in Oriental Rubber Works' case [1984] 145 ITR 477 (SC). We have examined the notes, which are part of the paper book at pages 422-447....
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.... of cash memos without mentioning the names of the group, etc. It also points out that the business involves huge cash transactions, which might be used for cash purchase of raw materials. It speaks of personal visit to the shops and reference to non-issuance of cash memos to the customers except on demand and that too by estimate slips without mentioning the name of the concern or shop. Reference was made to one of the returns for the assessment year 1993-94 of Haldiram Bhujiawala with a gross turnover of Rs. 1.51 crore and gross profit of Rs. 23.59 lakhs showing net profit of Rs. 10,240. There is also an estimate about the gross profit and net profit ratio to be 15.62 per cent. and 0.066 per cent., respectively, and that because of secrecy the reference could not be verified. It had also attempted to make an average calculation of the cost of the production and diff e between the cost of production and the sale price. It had also estimated the investment made by the groups and the undertaking of fresh new projects and formation of new companies. However, the question of investment in share scam in benami may not be acceptable as a reasonable ground for formation of the opinion th....
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.... Mr. Bhattacharya pointed out that despite the name being Pratik Food Products, the seizure list was prepared in the name of Pratik Food Products Pvt. Ltd. But these are questions, which are not necessary to be gone into because that was something, which was discovered after the decision was taken to proceed to search the premises and seize the materials. It seems that the entire gamut of the report was in respect of Prabhu Sankar Agarwal and Mahesh Kumar Agarwal and their groups. Therefore, it is immaterial that the name of one of the enterprises was or is wrongly mentioned. But then it will not make any difference when Pratik Food Products appears to be a proprietorship concern, which has no separate entity other than the proprietor himself Mahesh Kumar Agarwal. Therefore, the wrong description of Pratik Food Products would be immaterial in the present case when Pratik Food Products Pvt. Ltd., has no existence other than the proprietor himself Mahesh Kumar Agarwal, proprietor, Pratik Food Products. That apart, the name figures in the report and that its office and sales counter are situated at No. 58, J.L. Nehru Road, which was within the list of search. Therefore, mentioning ....